By the end of this guide, you will be able to:
- Define What an HMO Is and Understand the Types of Properties That Fall into This Category
- Explain The Advantages and Disadvantages of HMO Investments
- Understand Lender Requirements and How They Differ from Standard Buy-To-Let
- Recognise When an HMO Mortgage Is Suitable for A Landlord And When It May Not Be
What is an HMO?
A house in multiple occupation (HMO) is a property rented out by at least three people who are not from one ‘household’ (e.g. a family) but share facilities such as a bathroom or kitchen. These are typically student houses, professional house shares, or multi-let properties.
HMOs can be categorised as either small (usually 3–4 occupants) or large (5 or more occupants). Large HMOs are subject to mandatory licensing, and additional local licensing rules may apply depending on the council.
Why landlords invest in HMOs
HMO investments offer several key benefits for landlords:
- Higher Rental Yields – Charging by The Room Often Results In Greater Rental Income Than Single-Tenancy Lets
- Strong Tenant Demand – In Student Towns or Cities with Young Professionals, Demand for Shared Housing Is Often Consistent
- Reduced Void Risk – Multiple Tenancies Reduce the Impact of One Tenant Moving Out
- Portfolio Growth – HMOs Can Offer Higher Returns Per Property, Allowing Landlords to Scale More Quickly
Potential downsides of HMO investments
Despite the benefits, HMOs also come with additional responsibilities and risks:
- Stricter Regulation – Licensing, Fire Safety, And Space Requirements Are More Stringent for HMOs Than Standard Lets
- More Complex Mortgages – Fewer Lenders Offer HMO Mortgages, And Underwriting Is Typically More Rigorous
- Higher Maintenance – With More Tenants Comes Greater Wear and Tear and More Intensive Property Management
- Reduced Market on Exit – Selling an HMO Can Be Trickier Than a Standard Rental Property, Especially If It's Highly Customised
Key considerations for brokers
When advising clients on HMO mortgages, brokers should consider the following:
- Licensing Requirements – Check Whether the Property Requires a Mandatory HMO Licence or Falls Under Additional Local Schemes
- Lender Availability – Not All Lenders Offer HMO Products, And Those That Do Often Require Landlords to Have Previous Buy-To-Let Experience
- Property Type and Layout – Lenders May Require Minimum Room Sizes, Shared Space Provisions, And Suitable Fire Safety Measures
- Valuation Differences – Some Lenders Value HMOs As Investment Properties, While Others Use a Bricks-And-Mortar Approach
- Experience Of the Landlord – Many Lenders Only Accept Applications from Experienced Landlords Due to The Complexity Of Managing HMOs
When is an HMO mortgage suitable?
- For Experienced Landlords – Those with A Track Record in Buy-To-Let Are More Likely to Secure HMO Funding and Manage Tenants Successfully
- For Investors in High-Demand Rental Areas – University Towns and Cities with A Strong Professional Tenant Base Are Ideal For HMOs
- For Landlords Seeking High Yields – Charging Rent by The Room Often Boosts Income
- For Clients Interested in Long-Term Rental Strategies – HMOs Often Outperform Single-Lets Over Time
When is an HMO mortgage not suitable?
- For First-Time Landlords – Most Lenders Require Prior Experience and May Reject Applications from New Investors
- For Low-Demand Locations – In Areas Without Strong Demand for Shared Housing, Void Periods and Management Costs Can Rise
- For Clients Seeking Low-Maintenance Investments – HMOs Require More Attention Than Single-Tenancy Properties
- For Clients Unwilling to Comply with Regulation – Non-Compliance with Licensing, Fire Safety, And Planning Rules Can Lead to Fines and Enforcement
Conclusion
HMOs offer landlords the potential for increased returns, but they are not without their challenges. For mortgage brokers, understanding the additional regulations, lender restrictions, and suitability criteria is key to helping clients make informed decisions.
At NBTLAE, we’re here to help brokers stay ahead in a competitive and evolving market. Join us at the National Buy to Let Adviser Event to sharpen your knowledge and discover more specialist opportunities in the buy-to-let sector.
